As international relations swing from occasional openness to economic sparring, firms are thrusted into geopolitical conflicts (Meyer et al., 2023; Li et al., 2017). In a recent example, China banned Lithuanian exporters when the two countries locked horns over Taiwan. Sanctions, as a policy tool used by actors to alert, induce, or penalize others’ behavior, have become prevalent in these disputes (Mulder., 2022). Some international disputes begin and end with threatening language. For example, in 1997, the U.S. threatened China with sanctions over supposed violations of intellectual property rights, but the sanctions were never initiated (Whang et al., 2013). Other times, international disputes escalate to expansive sanctions. Beijing, which resents the Dalai Lama, punishes countries that welcome him by limiting their exports to China (Fuchs et al., 2013). When sanctions are implemented, their economic impacts still vary widely. Huawei has flourished despite the American sanctions (The Economist, 2024). Lithuanian exports to China have resumed even if the Baltic country supports Taiwan. These anecdotes are memorable, but we do not fully understand what explains and predicts the severity of such disputes.
